Iranian discontent rises as riot police fight protesters

Iranian protesters gather next to a garbage container which is set on fire during scuffles with police in central Tehran.Photo: AFP

By Robert Tait, David Blair

5:54PM BST 03 Oct 2012

Security forces used tear gas and batons against demonstrators angered by a dramatic collapse in the national currency, the rial, which has lost about a third of its value against the US dollar since Sunday. The hour by hour decline of the currency provides vivid evidence of the damage wrought by international sanctions, which were imposed because of Iran's nuclear ambitions.

Protesters smashed shop windows and attacked banks after areas of the bazaar filled with moneychangers were closed. Numerous arrests were reported as protests spread out of the bazaar in central Tehran and into neighbouring areas.

Behind the rial's decline lies a precipitous fall in Iranian oil exports, which have dropped from about 2.5 million barrels per day last year to 1.1 million barrels in August, according to the International Energy Agency. This has deprived Iran of billions of dollars of revenues and exposed the regime's failure to avoid the damage caused by sanctions. "There is a perception that Iran is ahead of the game, anticipating what is to come and planning elaborate counter-measures to deal with economic sanctions. This is untrue," said Nigel Kushner, chief executive of W Legal, a law firm specialising in sanctions compliance.

"My view is Iran is like a rabbit glaring at the headlights of an oncoming juggernaut. It is reacting too late and in a half-hearted manner."

The collapse of the currency reflects a general loss of public confidence. The anti-government website, Kalemeh, cited eyewitnesses accounts that demonstrators demanded the overthrow of President Mahmoud Ahmadinejad.

The rial is reported to be trading at about 37,500 for one US dollar, compared with 29,500 as recently as Sunday. At the end of last year, Iranians needed only 16,000 rials to buy 1 dollar.

The clashes came a day after Mr Ahmadinejad blamed the currency's collapse on "psychological warfare" waged by Iran's foreign and domestic "enemies". He denied that his government's policies had anything to do with the decline. However, the immediate trigger appears to have been an announcement restricting the provision of US dollars by the Central Bank at the official exchange rate for the purchase of essential imports. Previously, dollars were made available at preferential rates for imports in five key categories. This was reduced to two, apparently spreading fears about a shortage of dollars.

This incident has sharpened the feud between Mr Ahmadinejad and his domestic opponents. Ali Larijani, the speaker of parliament and a possible contender to succeed the president in the election due next June, attributed the rial's decline "80 per cent" to government mismanagement rather than sanctions.

The opposition website Kalemeh said that bazaar traders were protesting against economic instability and the regime's "passive approach".

The collapse of the rial makes it far more expensive for Iranian companies to buy imported goods. Mr Kushner said the latest decline "means that most Iranian importers simply cannot afford to pay for goods if they must use the free market rate."

Instead of trading with the West, Iran has tried to buy more goods from countries likes China, India and particularly Turkey. However, the fall in the currency raises the price of imports across the board, meaning that they could become unaffordable. "We will see a real financial crisis in the coming months because the economy cannot sustain this," said Mr Kushner. "It is bad, but will become a lot worse."